Banking scandal money reached Estonia

An international report suggests that a little over $50 million of nearly $1 billion laundered through three Moldovan banks in 2012-2014 passed through Estonian banks.

The scandal revolves around one of the wealthiest persons in Moldova, Ilan Shor (30), whose associates acquired holdings in three local banks – Banca de Economii, Unibank, and Banca Sociala – in 2012-2014. During that period, the banks started issuing colossal loans to different companies, including offshore ventures with unknown backgrounds.

The loans were repaid in time. However, that was just a smokescreen as the money was quickly lent out again. Because the companies that repaid the initial loans had become more trustworthy, banks

could now offer them even bigger loans. International organizations found the banks’ loan volumes clearly out of balance and dangerous when compared to equity capital.

Suddenly, loans that had amounted to nearly $1 billion, were no longer repaid. The money disappeared from Moldovan bank accounts without a trace. The lion’s share of the money, or around $750 million, was withdrawn on November 24-26, 2014, right before parliamentary elections in Moldova.

The emptied banks filed for bankruptcy on November 26. These were important banks for Moldova that held the savings of a lot of citizens. This fact made the scandal politically relevant.

On November 27, prime minister at the time Iurie Leanca decided in secret that the banks would be bailed out with state loans amounting to $870 million, or roughly 8 percent of GDP. That is just what the authors of the scheme were after, virtually making it a case of theft of state assets.

It is worth recalling that the Laundromat money laundering scheme of nearly $20 billion happened at around the same time. The latter scheme was carried out through Moldindconbank, with the money once more landing in offshore bank accounts. Who received the money and where remains a mystery. Nearly $1.6 billion reached Estonia through the Laundromat scheme.

The Moldovan central bank launched an investigation. The bank hired internal investigation specialists Kroll that produced a thorough report on what had transpired. The company was in contact with the Estonian financial watchdog during the work.

The report finds that $51.4 million of the money embezzled from Moldova reached Estonian banks. Similarly to the Laundromat scheme, sums that reached Estonia pale in comparison to the $300 million moved through Latvia; however, Estonia is mentioned in several places in the report.

The Estonian Financial Inspectorate cannot comment on the case. Head of the Central Criminal Police’s money laundering unit Madis Reimand said that Estonian banks were used for transit, meaning that sums were quickly moved out of Estonia again. The money was long gone by the time the scheme came to light.

“Estonia has pursued extensive and thorough cooperation with Moldova regarding the scheme, and there are several criminal cases in various stages of investigation associated with it,” Reimand said. Head of Communication at Versobank Margus Maidla is the most open regarding the case and said risk managers of Estonian banks are familiar with the scheme.

“Because it did not leave a single Estonian commercial bank unaffected; it is possible the inspectorate’s silence is also the result of this fact. The report reveals that the money was moved through banks in 11 countries, and Estonia’s total sum was rather smaller or somewhere in the middle,” Maidla said.

Leading commercial banks SEB and Swedbank refuted any connection to the scheme. Head of Communication at Danske Bank, that was a key player in the Moldovan and Azerbaijani Laundromat schemes, Kenni Leth said that the bank is in the middle of a thorough client and transaction audit in its Estonian branch. “We have no further comments until the investigation has been concluded,” Leth said.